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2.22.04 Aquila, M.U.D. wage a meter war Across rolling farm fields and in dry court documents an intense struggle is being waged between the Omaha area's two natural gas utilities. And it's a battle that could end up affecting gas systems across the state. At issue is who -- Aquila Inc. or the Metropolitan Utilities District -- should provide natural gas to various areas of rapidly growing Sarpy County. Both utilities already have strong footholds in the county, serving between 21,000 and 25,000 customers each. But more customers mean a stronger bottom line, so they are working to line up subdivisions, major industries and unclaimed rural areas. Disputes between the two have landed them before state regulators seven times in the past five years. Two of those cases have been taken to court. And down the road, the competition between the two may propel Nebraska toward boundaries for gas utilities. The competition matters to Omaha area consumers because duplication can create safety problems and push up rates. Orderly growth, on the other hand, can help keep rates in check. Should boundaries ever be drawn, though, their location would have a long-term economic impact on M.U.D. and Aquila. The issue is relevant across the state because a number of municipal gas utilities, from Nebraska City to Hastings, potentially face growth-related problems similar to those occurring in the Omaha area. If these communities grow and annex areas served by private utilities, would their public utilities be able to follow? The Legislature's Urban Affairs Committee last week shelved an Aquila-backed proposal by State Sen. Mark Quandahl of Omaha to draw boundaries for gas utilities. The boundary plan was seen as leaning too heavily toward private utilities' interests. In some form, at some point, though, the issue is likely to return. "It just makes for more orderly development," Quandahl said. "It puts everybody on equal footing." When the state does tackle boundaries, it will have some difficult questions to address. For example, how much does Nebraska, a state that prides itself on its public power and public utilities, want to protect the health of its private gas utilities? Two of Nebraska's three major private gas utilities, including Aquila, are struggling under enormous financial problems, and boundaries would provide financial certainty. And how does the state reconcile imposing boundaries on a city that has had the right to contract -- or end its contract -- with a gas utility? Two Sarpy County communities, Papillion and Bellevue, are hesitant to enter into long-term contract extensions with Aquila. Bellevue, in particular, has talked about unifying its city under one utility. About 70 percent of Bellevue is served by M.U.D. and 30 percent by Aquila. Will municipal utilities, such as those in Nebraska City and Hastings, be allowed to grow as the cities annex more territory? But the big issue now is M.U.D. and Aquila and rapidly growing Sarpy County. Growth strengthens utilities - how much will each be allowed to grow? Especially if that growth strengthens one and threatens the other? Nebraska's regulation of natural gas has changed a great deal in recent years. Five years ago, the state passed a law to address competition among utilities, and it is that law that has led to the sparring between Aquila and M.U.D. as the two sides build up a case law. Last year, Nebraska became the last state to give state regulators authority over investor-owned gas utilities. Boundaries, should they ever be drawn, would extend greater state authority over publicly owned utilities. Greater state regulation is not unprecedented. More than 40 states allow boundaries for natural gas utilities, said Charles Gray, executive director of the National Association of Regulatory Utility Commissioners. Furthermore, Nebraska's public electric utilities have boundaries, and the State Power Review Board reviews electric utility expansions. Proponents say boundaries would improve safety and prevent "cherry-picking" that could lead to increased rates for residential customers. Opponents say they are unnecessary in Nebraska and would reduce local control. Jon Empson, senior vice president of Aquila, said that boundaries are a proven way to lower overall costs, make operations safer, avoid duplication and allow for orderly growth. But Richard Duxbury, executive director of NMPP Energy, which provides natural gas to 10 Nebraska communities, said laws passed in recent years are enough to govern natural gas disputes. "There may be new problems down the road that we don't know about," he said, "but right now, for the problems that have come up, there are sufficient laws on the books if they're utilized." M.U.D.'s general manager, Tom Wurtz, concurs. Wurtz said boundaries drawn too tightly would constrain M.U.D.'s growth and cost existing customers money. It is the new subdivisions, Wurtz said, that shoulder the cost of maintaining the older parts of M.U.D.'s systems. New mains can be paid off in about seven or eight years. After that, they generate revenue for several decades before they begin requiring maintenance. The revenue from that maintenance-free period is spent repairing older parts of M.U.D.'s system. If M.U.D.'s ability to grow is constrained, existing customers, he said, will have to pick up a higher share of maintenance costs. On the other hand, if M.U.D. is allowed to grow at Aquila's expense, Aquila customers will be left with higher costs. That's because they, too, need the economies of scale to spread out their costs. What apparently isn't at stake in this debate is economic development. Both utilities have good reputations for promoting economic development in their communities. And Ember Grummons of Investors Realty said most businesses looking to buy property are looking at location, price, access and visibility. To the extent that M.U.D. or Aquila bill businesses more or less, energy costs fall further down the list, Grummons said, unless the buyer happens to be an industry that consumes large amounts of energy. Nor does this appear to be about the right of homeowners in future subdivisions to gain access to M.U.D.'s generally lower rates. Most subdivision developers contacted said they alternate between the two utilities when a choice is possible. "Competition between the two utilities is a good thing," said Gene Graves of Graves Development Resources Co. "It keeps them sharper and more responsive." As a general principle, boundaries provide utilities with financial certainty. Gas mains are costly, so utilities want to know that once they lay the mains, they will be able to sign up the customers who spring up along them. Indirectly, this protects existing customers of a utility. Financial certainty is particularly important in Nebraska, because Aquila and Northwestern Energy are struggling financially. Northwestern has declared bankruptcy, and Aquila is working off $2.2 billion in debt in the hopes of returning to profitability. Boundaries would have the side benefit of making these utilities moreattractive should they be offered for sale - although Aquila's chief executive officer, Richard Green, has said the utility has no plans to sell. Your Monthly Bill
* Formerly Peoples Natural Gas. Rate area I of Nebraska, which includes parts of Douglas and Sarpy Counties and several other counties. |
Comparing utilities: M.U.D. and Aquila | ||||||||||||||||||||||||||||||